The financing of the enterprise can be carried out through investments or capital investments. What are the specifics of both instruments? What is the difference between investments from the capital investment?
The content of the article
- What is different about investment?
- What is the specificity of capital investments?
- The difference between investments and capital investments
- Comparison table
What is different about investment?
Under investment is commonly understood as a relatively long-term investment funds in the development of the enterprise. Through this, typically funded by the fundamental components of business fixed assets, personnel, research and development, carried out modernization of production, promotion of the brand and its products.
Investments are classified into several main categories: venture capital, direct, portfolio, and annuity.
Venture capital investments represent investments in projects with potentially very high profitability, and at the same time, nothing guaranteed. There is the risk that investments will be completely unprofitable. Venture capital investments typically are used to Finance innovative businesses, those that form new segments in the economy.
Direct investments are investments in the capital of the company in exchange for affiliate’s right to participate in management of the company. Practiced mainly in the relationship between investors and owners of large businesses, international holdings.
Portfolio investments are investments in the capital of the company in exchange for a affiliate’s share in the business. Typical of most corporations. A type of portfolio investment can be considered the purchase of shares of the company on the stock exchange.
Annuity investment involves the purchase of securities of the company generating income in a certain period of time. For example, it may be investments in bonds of the company.
There are investments of a special kind — sponsorship. They do not require mandatory partner of extracting profit, but it creates certain conditions for the emergence of indirect factors of purchase investor preferences in the future. For example, in the form of increased brand awareness. These investments cannot be considered gratuitous, as the sponsor generally expects the acquisition of relevant preferences. But his partner, receiving financial support, usually does not owe investor legal obligations.
to contents ↑what is the specificity of capital investments?
Under capital investment is commonly understood as a financing company for the account of own money, and through investment contracts of various measures aimed at improving the efficiency and competitiveness of the company. Funds that the company spends in the framework of this scheme, can be sent to:
- qualitative upgrading of equipment, expanding the range of goods produced by the company, and improvement of characteristics of products;
- on the scientific and engineering development, licensing and patenting;
- on the improvement of working conditions of employees, environmental protection, solution of social problems — such as those associated with the growth of employees ‘ salaries faster than inflation.
Economists also classify capital investments in production and non-production. The former include those that are directly related to the activities of the enterprise. The latter — those that are not directly related to it. So, capital investments aimed at solving social problems, as a rule, are non-productive.
As we noted above, funds for the implementation of capital investments in business can be involved from the outside — due to the investment contracts. In this case they will be classified on the same grounds, which are divided into certain categories of investments. Then there will be venture capital in nature, to be direct, portfolio or annuity investments.
to contents ↑the Difference between investments and capital investments
The main difference between investments from the capital investment in that the former do not always tend to be ad hoc and not in all cases are directed at optimizing production, the latter — as a rule, meet this criteria.
Investment is a way to replenish the working capital of the firm. Capital investment — the mechanism of their spending. Moreover, the existence of the first doesn’t always mean using them as a second. The investment can be spent, for example, on the organization of large-scale celebration significant for the company’s life events, the sponsorship of sports teams.
Investment is raising capital from outside, through affiliate contracts. Capital investments can be at the expense of own funds of the firm. However, if capital is involved, the condition for the implementation of relevant investments will be successful investor. In addition, the contract of the company with the investor can be stated that the funds should be directed to a specific purpose — in this case, capital investment will actually be an investment in pure form.
Owners and managers of many firms prefer in principle not to distinguish between the concepts of investments and capital investments, considering both in the context of the totality of activities related to improving business competitiveness. But if a significant percentage of financial transactions in the framework of this task will not be able to match the characteristics of investment in fixed assets of the company, the capital investments of their name would be not quite correct.
For example, funding advertising and promotion of the brand on the market is undoubtedly, efforts to increase business competitiveness. But it is not related to production, personnel, development, and because for most of the criteria cannot be considered as an example of capital investments.
Examining the difference between investment and capital investment, reflect the findings in the table.
to content ↑Comparative table
What is common between them?
Capital investments can be at the expense of attraction of investments
The purpose of investments under the contract may be the implementation of capital investments in specific areas of the business process
What is the difference between them?
Can wear unearmarked
As a rule, are targeted
Can be sent for purposes not connected with the production and business in principle
As a rule, to goals related to production and business, ensuring the competitiveness of the firm